How to create a tax code on SAP Business One?

First-time users often find it difficult to define tax codes on their ERP system. Though it may seem like an overly complicated process, it isn’t. There are a series of steps involved in defining the tax codes. But before we dive into the details, let us understand what tax codes are and why do we need them.

What are tax codes?

A tax code is a government file that contains thousands of numbered pages that defines the rules that individuals and businesses must follow while settling the taxes to the central or state government. Tax codes are used to calculate tax in domestic procurement.

Tax codes are unique to each country. The rules for tax rate calculation and other important features are stored in a table for each tax code. You should use tax codes with a 0% rate for tax-exempt or non-taxable transactions, if the corresponding transactions are to be displayed in the tax returns. You’ll have to define new tax codes if tax rates are changed by the government during the annual reviews. The old codes with the old tax rates must remain in the system till the open items which use this tax code don’t exist anymore.

According to SAP Business One, tax code refers to the two-digit code that represents the specifications used for calculating and displaying tax.

Open the List of Tax Parameters window by choosing Tab in the empty field of the Parameter Code column, and select tax parameters for the tax formula by double-clicking the row or choosing the OK button after selecting the row

Define the formulas in the formula pan on the right

Check if the formulas are correct by clicking button before the Formula Validation Message. If you don’t get a message, your formula is correct